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Next week the Federal Reserve will release their G.19 tabulation on consumer credit. This report covers most credit extended to individuals, excluding loans secured by real estate.

We are bombarded daily by words such as “debt crisis”, “debt consolidation”, “consumer retrenchment” – and on and on. The words themselves conjure the image of a consumer down and out until credit is paid off enough to be in line with real purchasing power.

Then we are shown consumer credit graphs. Consumers appear to have gorged themselves – and few grasp why consumer credit now is growing (or even understand it is growing).

click to enlarge images

Graphs like the one above give no context to consumer credit. How do you compare the $800 billion value in 1990 to the $2.4 trillions in 2010? The next graph adds some context showing total consumer debt has declined in normalized terms and is now approaching 16% of GDP.

The graph above says the great 2000s credit buildup has been annihilated – and consumer debt load (when compared to GDP) is approaching 1990s levels. At least with this graph, the “best” consumer debt load can be argued – is it 13% of GDP, or 16%?

In case you believe 13% is more likely the correct consumer credit to GDP ratio – do I have a graph for you.

In context, 3% is the ratio of student loans to GDP (16% – 3% = 13%). In the 1970s student loans were an insignificant number. A major portion of the increase in consumer credit beginning in the 1990s can be laid squarely at the feet of student loans. The point here is that it could be argued that consumer credit (sans student loans) has now returned to its historical range.

Attacking from a different angle, the graph below ratios of consumer credit to population – and then inflation adjusts the results. The objective in inflation adjusting is to try to get a sense of the quantity of widgets the consumers are buying with credit. Note that this graph INCLUDES student loans.

Caveat on this graph: The red inflation adjusted line assumes 100% of the debt is rolled over each month – and that is simply not true. On the other hand few consumer loans have loan lifetimes over 5 years. The correct inflation adjusted line is arguably around midway between the red and blue lines. Here even the 2000s credit expansion is flattened – and belies the statements of consumers general over use of credit.

Econintersect believes consumer credit is not far from its historical channel at the present time.

Economic News This Week:

The Econintersect economic forecast for November 2011 continues to predict weak growth.

ECRI has called a recession. Their data looks ahead 6 months and the bottom line for them is that a recession is a certainty. The size and depth is unknown. Although Econintersect’s data is not recessionary (one month look-ahead) – we take this recession call seriously. This week the actual level of ECRI’s WLI index was less bad but still indicating the economy six months from today will be worse.

Initial unemployment claims fell 9,000 (from 406,000 which was revised up from a preliminary 402,000 last week) to 397,000. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate (background here and here). The real gauge – the 4 week moving average – fell slightly to 404,500. Because of the noise (week-to-week movements from abnormal events), the 4-week average remains the reliable gauge.

Overall the data this week showed a weakly improving economy. There were no recessionary flags.

Weekly Economic Release Scorecard:

China: More unwise trade sanctions coming
October BLS Jobs: 104K jobs, but both temp help and transportation jobs grew
September Manufacturing Sales: Not as good as August 2011 Growth
October ISM Non-Manufacturing: Weaker than the headlines suggest
Investment Advice: Is it any more than random guesses?
October ADP Jobs: Up 110,000 – not good, not bad
Government Debt: Should $14 trillion be a worry?
September Construction Spending: Public spending down, Private spending up
October ISM Manufacturing: Still expanding but rate of expansion slowing
Recession Viewpoint: Arguments in support of a coming recession
Banks: European and USA bank liabilities in perspective
November Economic Forecast: Economy expanding but rate of expansion declines
Euro PIGS: How they should leave the Euro
Bond Insurance: A second look at the usefulness of insuring the bond market
Euro: Using oil price spreads to short the Euro
USA Economy: Has it turned the corner with investing now safe?
New York City Housing: Is the market about to collapse?
Investing: Equities market growth seen going forward
Europe: A look at Greek contagion
China vs America: To be viewed as an adversary or competitor?
Societal Advancement: Has America lost its way?
Occupy Wall Street: What the protestors should know about big banks
Euro Debt Insurance: What has happened to the collateralized debt market?
Housing Values: Two moves to strengthen the housing market
Euro Crisis: Five Policy prescriptions to make Europe healthier
China: Is it positioning itself to take down the USA without firing a shot?

Bankruptcies This Week: Imperial Capital Bancorp, MF Global Holdings and MF Global Finance USA, Beacon Power, Syms and its wholly-owned subsidiary Filene’s Basement

Failed Banks This Week:

Source: What Gives With Consumer Credit?